If your company conducts business in Australia, there are a few particularities regarding foreign tax residency to keep in mind. For example, it’s possible to be an Australian citizen and still have a foreign tax residency. Your tax liability will depend on where in the world you do business. We’ll take a closer look at tax residency rules below, as well as the different levels of Australian corporate tax rates.
Resident vs. non-resident tax rates
Individuals are considered Australian residents for tax purposes if they pass the ‘resides’ test, meaning that they normally live within Australia and must declare income from all sources. Even if you don’t pass this residency test, you might still be considered a resident for tax purposes if:
You are present in Australia for over 50% of the year or 183 days
You work at an Australian government post overseas
Your permanent home is in Australia even if you are living and working abroad
Non-residents will only be taxed on income earned in Australia, which is why it’s important to determine your individual status. Examples of non-resident income include wages, business income, and capital gains on Australian property. Non-resident tax rates also fall under a different threshold than resident tax rates.
Non-resident company tax rate Australia
The residency rules listed above apply to individuals, but what about foreign companies that do business inside the country? The Australian Tax Office (ATO) has published new guidance regarding company residency to clarify this issue.
Businesses will now qualify as Australian resident companies for tax purposes if they meet criteria such as the following:
The company is incorporated in Australia.
The company is incorporated overseas but conducts business in Australia, provided that either its central management is in Australia or Australian tax residents control its voting power.
This new ATO stance allows a wider selection of companies to qualify for Australian tax residency. Even if your business is located overseas and no board meetings are held within Australia, if the majority of directors are Australian tax residents it would still qualify for company tax residency. This means that many overseas businesses that were previously non-resident could now qualify as resident for tax purposes.
This comes with a series of consequences:
The foreign company must adhere to resident company tax rates in Australia, meaning all income would be considered.
All capital gains would be considered for Australian taxation
Some tax losses could be cancelled, particularly those arising in foreign countries.
It’s therefore important for any foreign businesses that might qualify for residency to be aware of these rules along with the latest business tax rates.
Business tax rates for non-residents
There are many ways that overseas corporations can still provide services within Australia without qualifying for tax residency. For example, companies can ship goods to Australian customers who qualify as ‘importers of record’. This means that the company doesn’t need to meet any Australian corporate tax obligations.
So, what type of business taxes can non-residents expect to pay?
Many companies that import goods to Australia or provide services to Australian customers will be liable for the goods and services tax (GST). Non-resident companies that must pay GST will need to apply for an Australian Business Number (ABN) and Tax File Number (TFN) for record-keeping with the ATO. However, if you have no plans to open a branch or subsidiary company within Australia you won’t have to register for an Australian Registered Business Number (ARBN).
Additional indirect taxes that businesses should be aware of include:
Fringe benefits tax
Customs and excise duties
State and regional taxes
The bottom line
Australian corporate tax rates can be complicated, particularly when it comes to businesses providing services from overseas. Some companies may benefit from establishing Australian residency, while others can save money with a foreign tax residency instead. It’s a good idea to speak to a tax professional located within Australia to determine what your options are.
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